2024 ARR and revenue valuation multiples for SaaS companies

FINANCE SPECIALIST

Marjorie Stern Jackson

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We are already more than halfway through 2024, making it the perfect time to update our 2023 report on SaaS revenue valuation multiples and ARR.  Whether you are an investor, business leader, or simply interested in the SaaS sector, this article consolidates essential insights from the most credible global SaaS benchmarks into one convenient source.

Key takeways

There are several important trends emerging in 2024:

  •  Median revenue growth rates continue to fall for SaaS companies across all size categories except for those with less than $1 million ARR
  • The number of new SaaS IPOs is low, indicating a subdued macro-economic environment
  • AI is influencing business models, operational efficiencies, and valuation metrics across the sector, both positively and negatively.

The most important takeaway is that while revenue and ARR growth is important, it must be balanced against efficiency.  The focus is “smart growth” rather than “growth at all costs”.

Our data sources

In writing this article, we have reviewed and integrated key findings from the following sources:

As 2024 continues and additional benchmarks are published, we will update this article.

What is ARR and how is it calculated?

Much of the data below is built on ARR or MRR multiples.  Here are our definitions of ARR and MRR and how they relate:

  • Annual Recurring Revenue (ARR): The predictable and recurring revenue generated from subscriptions over a one year period.  ARR excludes one time fees and considers only the recurring portion of the revenue.
  • Monthly Recurring Revenue (MRR):  One full month of recurring revenue.  Often used to generate an annualised ARR by multiplying most recent MRR by 12.
ARR defiinition: ARR = Monthly Recurring Revenue (MRR) x 12 months or, the value all annual contract values, summed

What were the key take aways from 2023?

In 2023, there was a significant decline in median sales multipes for SaaS companies.  At the end of 2022, average valuation multiples were 7.7x ARR.  By the end of 2023, this had fallen to 5.6x.

This was a material shift and indicates that SaaS companies – for the same performance – received valuations which were 27% lower at the end of 2023 compared to the end of 2022.

This shift was part of a larger dynamic in which investors focused on efficient growth rather than “grow at all costs.”   Metrics such as CAC Payback and Rule of 40 are now critical to gauge growth efficiency. 

What are the 2024 ARR valuation multiples?

The first half of 2024 sees a continuation of the trends from 2023.  Valuation multiples continue to decline for most SaaS companies, as shown in Table 1 below.

Table 1: ARR Multiples by Company Size

This data, when viewed by SaaS sector, can be more nuanced, with certain areas commanding higher valuations.

Table 2: ARR Multiples by SaaS Sector

How have IPOs impacted the market in 2024?

An IPO has traditionally been the holy grail for many SaaS companies.  Over the last 30 year, the top SaaS companies generally chose to IPO, providing lucrative returns for investors.

In 2024, the IPO market for SaaS companies has been subdued.  Across apital markets in general, the clear exception to this has been AI hardware and chip manufacturers.  This has not spilled over into SaaS companies.  For comparison, consider the following 2024 IPOs:

  •  Astera Labs Inc., which specialises in advanced chip based connectivity for data centres and AI infrastructre, IPO’d  on the Nasdaq in April 2024 at a multipe of 40.7x revenue
  • Rubrik Inc, a SaaS company that specailises in cloud data mangamenet and data security solutions which iPOd on the Nasdaq in April 2024 with ARR of approximately $500 million.  At a $5.6 billion valuation, their revenue multiple was 11.2x.

Potential implications of AI for SaaS companies

This of course raises the question as to how AI will impact SaaS companies.  Positioning a SaaS product as AI driven does not inherently drive growth, and until a series of SaaS businesses demonstrate how AI can achieve this, valuations will not be positively impacted.  There is also likely a negative valuation impact caused by fears that AI could displace certain traditionally SaaS propositions.

What does all this mean for your SaaS business?

This trend for efficient growth, which began in 2023, continues in 2024.

For your SaaS business, this means a strategic pivot towards demonstrating efficiency and sustainable growth will be crucial.  Focus on optimising your Customer Acquisition Cost (CAC) and ensure that you are trakcing metrics which capture growth efficiency including:

  •  CAC Payback Period: The time it takes to recover the cost of acquiiring a new customer
  • Rule of 40: A benchmark combining revenue growth rate and profit margin.  It states that the sum of your growth rate and profit margin should be t least 40%.  this metric is ony useful if revenue is $1 million plus.
  • Net Revenue Retention:  Measures revenue growth or contraction from existing customers, taking into account upsells, cross-sells, downgrades and churn.

How can ScaleXP help my business?

If you are considering how to grow efficiently:

  • automate invoicing
  • automate the accounting month end close process
  • streamline tracking of all your SaaS KPIs from MRR to CAC to Lifetime Value

get in touch.

At ScaleXP, our mission is to empower early stage and high growth companies with data.  We do this by automating routine accounting processes (like revenue recognition and the accounting month end close), freeing up your team to create business impact.

Read more about how ScaleXP can automate your SaaS metrics reporting and month end process: